By Jeremy Brown, Regional Head of Middleware, Red Hat
Banks in the Middle East are not only performing strongly in regional markets, they are now looking to expanding overseas and growth their footprints across the globe. According to Deloitte’s latest report , ‘rising world trade flows, increased gross domestic product (GDP), a growing middle class and new technologies are expected to help banks based in emerging markets expand into developed markets in the coming year’. The growing ambitions of the region’s banking sector are driving up demand for effective IT. However, most (if not all) banks and financial institutions these days have cost reduction programmes in place.
Enabling rapid growth and agility with creaking IT systems poses a major challenge to financial services companies in the Middle East where the IT infrastructure, like in many other industries, has evolved over time and features a wide variety of solutions. More often than not, IT architectures are a complex mix of different proprietary systems, different databases and file systems, and standard and tailor-made applications. Business processes and rules are often hidden inside the software with changes being complex and tightly coupled across multiple applications, which have to be carefully coordinated and released which slows down the business’ ability to respond rapidly to changing market conditions.
In the automotive world, a Volkswagen and a Skoda can be built using the same chassis; sometimes the two car types are built in the same factory. But the German gets to charge a premium since its reputation for elegant design and enviable engineering outstrips that of its Czech-born sibling. CIOs at banks have started to realize a lot of what they manage is not the secret sauce that enables them to charge a premium and the bank’s IT chassis can be standardised. While a fiercely guarded trading algorithm can provide competitive advantage infrastructure management is not core to the business.
Banks have historically spent vast amounts of money on proprietary software or writing and maintaining their own but now there are credible open source alternatives to the proprietary software and the standardised open source solutions offer considerable cost benefits and the ability to tap into rapidly innovating open source communities.
In addition to the cost benefits that can be realized by embracing open source, financial institutions are also able to enjoy greater levels of software innovation. For example, in areas such as cloud computing and big data, innovation is being driven by open source – in these areas of innovation it is no longer about whether to choose between a proprietary or an open source vendor, it is more about which of the open source vendors you choose.
A dual vendor approach
Deciding to embrace open source is one thing, but implementing the migration is far easier said than done. Often banks are unwilling to lose the proprietary solutions entirely but will hedge their bets and choose a second OS vendor and develop a dual vendor strategy. Taking Java EE containers as an example: Java EE is a standard which banks are used to spending a lot of money on using – for example, Oracle Weblogic or IBM Webshere. Increasingly, banks are unwilling to deploy on proprietary systems because the costs keep rising, so why not use an open source JBoss JEE container and save a lot of money?
We’re seeing that this dual vendor strategy is not just in financial services but in a wide variety of verticals. Businesses are migrating hundreds and sometimes thousands of applications because they can realize significant cost savings and get exactly the same functionality, often they even get better performance by migrating.
One argument proprietary vendors often give for customers to choose their products is that they are more fully featured than the open source alternatives but this is often disputed by the open source vendors. Anecdotal evidence from those that have made the switch is that they might have lost one or two features that they never used or found other more elegant and modern ways to achieve the same effect.
In addition to migrating applications, if the hardware platform is out of date, banks can enjoy incredible returns on investment by updating the hardware to commodity x86 at the same time as switching the software stack on top. Traditionally, banks that have selected high-end, big budget Unix platforms, find themselves spending a lot on maintenance on ageing hardware that is actually slower. So, if they purchase new x86 commodity based hardware and migrate to a Linux operating system with an open source software stack on top, the ROI can be less than a year. This means they could invest in a migration immediately, because they will save more than their initial investment within the year.
In-Memory Data Grids
Memory is another area where we’re seeing open source make in-roads. Financial institutions are using in-memory data grids in order to accelerate the way their applications work. Rather than storing data on a discs or in a database that can be a bit slow, or even on solid-state drive (SSD ) which is fast but not as fast as in-memory. Memory is now so cheap that you can store huge amounts of information in-memory and data grids take care of making sure that data is never lost even though the data is maintained in memory through various clever strategies.
There are a couple particular proprietary vendors who lead the market for in-memory data, however, they are eye-wateringly expensive. Increasingly, we’re seeing banks run a dual in-memory data vendor approach, they maintain a proprietary presence, but they are also starting to offer an alternative for users based on open source. So, we’re seeing a trend whereby all new deployments are going to be on the open source solution, simply because it provides a significant cost saving as business continue to grow and new applications take advantage of modern software architectures.
Cloud and OpenStack
Financial institutions are reluctant to move towards public cloud for regulatory reasons as much as anything else. They have built their own internal clouds on their own hand cranked proprietary kit. Most of the cost of software is not in the upfront development but in the long term maintenance, which is why open source makes sense when you talk about cloud.
If a bank is building its next generation internal cloud and writes it in-house, it will have to constantly have its own dedicated engineers working on it and it will be the sole contributor. Whereas if the bank uses an open source product, where there is a large community and a lot of people committed to it, they will be able to take advantage of all the innovation that others in the community are contributing. In Infrastructure as a Service (IaaS), all the major IT players such as IBM, HP, Rackspace, VMWare and Red Hat are centering on OpenStack, so if a vendor says it will support OpenStack, it means the service will have long term support. This is exactly the kind of assurance that financial services companies are looking for.
So for their next generation internal IaaS banks are using open source, but they are going to a vendor for that long term maintenance. They influence the roadmap for the open source community and the vendor drives changes on behalf of those customers in those communities. This is transformational; previously if a bank needed features they would have to write in those features and support it for the next ten years. Now, for a fraction of that development and maintenance cost, they can get something that has a huge community of users.
A final development we’re seeing is in staff resourcing. Large financial institutions struggle to hire talent in a very competitive market. If you’re a talented coder would you rather work for an exciting start-up or take a staff job at a bank?
Developers nowadays no longer only use CVs, they use a Github account (which is sort of like a Facebook for programmers) and everyone can see the code that they have written. To get the best developers organisations need to allow them to contribute to open source projects.
Banks are in a battle with start-ups from a hiring perspective. They need to attract the best talent and they need to say ‘yes, we allow you to contribute to open source projects as part of your day job’.
The realisation among progressive banking CIOs ties into the standardised chassis approach to infrastructure management. It isn’t core to the business, so banks are happy to share knowledge and projects within the open source community. The upside to this sharing is, people within the open source community get to see that working for a bank can be every bit as stimulating as working for a start-up.
Standards help avoid lock-in
The key thing when choosing software is not only open source or proprietary but also open standards. Take Microsoft Office; Word has become the world’s de facto word processing application, but it is far from an open standard. Microsoft wants to keep it that way, naturally, since that’s where the bulk of its on-going revenues originate. However, perfectly acceptable alternatives are freely available. But moving to say Google docs is a bold move when everyone else is still using Office. Java EE has done for containers what, so far, no one has quite managed with office apps.
Once there is a standard, open source becomes really powerful because it helps avoid the lock-in that exists with a particular vendor. With standards in place proprietary vendor solutions become commoditised and purchasing decisions come down to cost and functionality.
If all the vendors subscribe to that standard then you can move between vendors. Open source comes in at that point and you can move from proprietary to open source. Banks, increasingly, are very much aligned to that way of thinking throughout their IT environments.
Open source offers a number of advantages, but that is not to say IT directors at financial services companies have suddenly developed a gung-ho attitude towards its adoption; they don’t want to download something off the internet and put it into production. They are still risk averse and conservative in nature, furthermore they have a wide variety of compliance regulations which they must meet. If they want to embrace open source, that means working with a vendor who can provide support and enterprise-class open source software for the long lifetimes of their applications.
About the Author
Jeremy Brown is the regional head of Middleware for Red Hat and has over 10 years of experience as an IT professional. He has a diverse understanding of Enterprise Architecture, Open Source, Java, Middleware and Cloud technologies. He develops new product strategies for the Red Hat JBoss Middleware business by working closely with customers to determine the solutions that meet their unique needs. He works with product engineering, professional services, and product support teams to ensure a world-class customer experience from proof-of-concept and pilot implementations all the way through to enterprise class deployments of the Red Hat JBoss Middleware portfolio.
The Next Evolution in Banking
By Young Pham, Chief Strategy Officer at CI&T
Everything we know about banking is about to change. A new industry around the sharing of financial data is primed to give birth to a host of new consumer services, all thanks to Application Programming Interface (API) technology. Already known for being the safest place for money, there are opportunities for banks to expand that relationship to other aspects of the customer relationship. Banks will no longer simply be just a place to deposit and withdraw your cash, but a one-stop-shop for a range of data-sensitive services.
The passing of GDPR and the Payment Services Directive (PSD2) were the first steps in this process of banks modernising how they handled their customer data. However, incumbent institutions have so far not engaged enthusiastically. Rather, it was only after growing pressure from fintech challengers and government regulation that they were forced to open up and share their data. This should not be treated as a regulatory challenge, but rather a way to grasp the unique opportunities that banks have to reposition themselves as the most trusted resource for their customers.
It is hard to overestimate the breadth of possibilities arising from open banking, should banks choose to take advantage of this evolution. While the public rarely holds bankers in high regard, it still puts a high level of trust in banking institutions. People are more willing to hand over their sensitive data than they would be to almost any other private entity. Furthermore, banks have a unique perspective into their customers’ behaviours, needs and desires. Spending habits, income streams and risk appetites are just a few examples of the data that no other institution can tap in to.
There is certainly appetite to expand offerings. In our recent study of business banking customers, over 68% of respondents indicated that they were open to their financial institution providing digital non-banking services. This includes services such as tax support, managing payroll, or invoicing to help them with their day-to-day businesses.
More banks should consider how open banking can maximise their digital capabilities and create a greater range of services for customers to enjoy. Such offerings could be tailored according to each bank and their particular customer audience. For instance, banks could offer everyday services for most users, such as insurance for individuals or business management tools for business accounts. Alternatively, banks could offer more exclusive and specialised services for high net worth individuals to meet their specific needs, such as art appraisal and investment management.
The idea that a firm can expand its offering into new verticals is hardly new. Many of the world’s largest tech companies, such as Apple and Amazon, already offer diverse products including hardware, software, entertainment and cloud services. They are able to do this thanks to the vast quantities of data they have gathered, which provide invaluable insights into consumer behaviour and demand. Banks are in prime position to follow the example of these top tier tech companies thanks to their monopoly on key financial data.
Disruptors vs incumbents
The business model described above is already being adopted by numerous challenger banks. These firms have led the innovative charge thus far, thanks largely to their agility afforded by their smaller size. Indeed, some fintech banks already provide a range of non-banking services to their customers. Revolut, for instance, offers users several types of travel insurance as well as access to airport lounges as part of its premium service for a monthly subscription.
These offerings are not a sign that the challenger banks are about to topple the large incumbents. Rather, these disruptors have always flagged the gaps in the market that larger institutions have been too slow to fill. It is now up to the established banks to learn from their example.
While challenger banks may have a first-mover advantage for these services, the incumbents have two key advantages: capital and credibility. Firstly, the top banks have enough cash to fund this overhaul of their business models. While the challengers have been able to afford to do so in recent years, they lack the reserves to tide them over during economic downturns such as the current pandemic.
Secondly, even though challenger banks are perceived as more convenient and are less vilified than traditional banks, the public still trusts the latter. Many of these large banks can point to their extended histories and long-term investment success – accolades young challengers simply cannot match. In short, people don’t have to like their bank to trust them with their cash and their data. These two advantages strongly suggest that large banks are better positioned to take advantage of the open banking business model in the long term, despite being slower to adopt and adapt.
All this opportunity is within reach. We already have the technical capabilities for data sharing, and the regulatory framework is not insurmountable. Rather, the key for this evolution of the sector lies in banks’ appetite for risk and willingness to reinvent their business model.
Banks need to take a leap of faith and leave behind the business paradigm to which they’ve become accustomed. They should embrace transparency, run towards regulation and take advantage of opportunities to invest in these areas or collaborate with outside technology firms. Only then will banks be able to make the most of their data assets, creating value for the customer and further strengthening the relationship.
Banks talk a good game, but are bankrupt when it comes to change and innovation
By Erich Gerber, SVP EMEA & APJ, TIBCO Software
You hear all the time about the incredible pace of change in technology and the way that it affects business, but sometimes we kid ourselves about the real speed of that change and the depth of its effects. Retail banking is a perfect example to illustrate the yawning chasm between the illusion and the less attractive reality. In this article, I want to provide a critique of the banking sector and its failure to change fundamentally and to modernise.
Banking is an old sector: the Banca Monte dei Paschi di Siena has its roots in the 15th century and the oldest UK banks go back to the 17th century. We often talk about legacy holding companies back, restricting their speed of operations and hampering their ability to adapt. Well, established banks have legacy in spades.
They also have cultural challenges. The old saying has it that something is “safe as the Bank of England” and that is a standard for security. But today we need banks to be more dynamic and represent something more than being a deposit box for our wealth. Consumers are accustomed to the superb customer experiences in entertainment (Spotify), devices (Apple), retail (Amazon), travel (Uber) and much else. Surveys show that they want their banks to be responsive, easy to use and available across multiple channels. They’d like banks to be secure but also to be advisors, enable flexible movement of assets between accounts, provide useful data analytics, be cloud- and mobile-friendly and offer deals that are specifically targeted at their interests.
At their core, banks now must become digital enterprises but, frankly, it has been slow going. As Deloitte observed: “While many banks are experimenting with digital, most have yet to make consistent, sustained and bold moves toward thorough, technology-enabled transformation.”
We all know that retail banking has changed significantly: you can see that in the proliferation of apps and the fact that, in pre-pandemic times, the morning and evening commute are peak times for transactions as people arrange their finances while sitting in trains, buses and subways. Banking has become a virtual, often mobile business, thanks to new tech-literate consumers pushing banks in that direction. But my fear is that the banks aren’t moving even nearly fast enough and that’s bad for us as consumers and bad for the banks themselves.
Banks are under pressure to change because challengers don’t have the legacy constraints of incumbents and because PSD2 and open banking regulations are having the intended effect of promoting banking as a service, delivering transparency and greater competition.
Attend any business technology conference and banks will talk about their digital transformations and customer experience breakthroughs, but it’s my contention that a lot of this work is more window-dressing than platform building. Or, to put it another way, banks are injecting Botox, rather than undergoing the open-heart surgery that they really need. It’s a case of ‘look: fluffy kittens and shiny baubles’ in the form of apps and websites, but the underlying platforms remain old and creaking and that means that the banking incumbents are hampered.
To be fair, I have lots of sympathy here. They simply can’t move as fast as the challenger banks that have had the luxury of starting their infrastructure from scratch and sooner or later that will come back and bite them. Look, for example, at cloud platforms where only 10 or 20 percent of infrastructure has been migrated despite promises of cloud-first strategies and the banking data centres where monolithic on-prem hardware still reigns.
You feel that slowness of action in your interactions with banks that communicate only via issued statements, letters notifying you of changes to Ts and Cs, and threats when you go into the red. Inertia is nothing new in banking either: we like to think that technology change happens in the blink of an eye but in banking contactless NFC took the best part of 20 years to go mainstream.
This is the dirty secret of banks. They see the need to change but remain shackled. Why are the banks so slow? Historically, because it was hard for competitors to gain banking licences and the capital to really challenge so there was no catalyst or mandate for change. Also, because change is tough and fear of downtime or a security compromise to critical systems is very real. More recently, because internal wars in organisations set roundheads against cavaliers, the risk-averse against the bold, resulting in impasse and frustration.
I said change is tough and that’s why banks need to power through on the basis of Winston Churchill’s wisdom that ‘if you’re going through hell, keep going.” How? By a combination of maniacal focus on expunging legacy systems, placing maximum emphasis on superb customer interaction experiences and digitally enabling anything that moves.
Right now, the banks are surviving, not thriving; they’re rabbits blinking into the headlights of approaching traffic, frozen in the moment. But they need to disrupt themselves before others do it to them: change is painful but not as painful as the alternative. They have to do much more or they will see a decline in their fortunes due to their bankrupt capacity for innovation and their inflexible infrastructures.
Vietnamese National Citizen Bank Rises to Excellence with Three Global Financial Awards
Hanoi, Vietnam – Global Banking & Finance Review is proud to announce the sweeping victory of National Citizen Bank in the 2020 Global Banking & Finance Awards®. The bank was recently presented with three prestigious global financial awards: Best Place to Work Vietnam 2020, Fastest Growing Retail Bank Vietnam 2020, and Best Investor Relations Bank Vietnam 2020. The Global Banking & Finance Awards® recognize the innovation, enterprise, method, progressive and influential transformations that transpire every year within the global finance community. National Citizen Bank would like to extend their thanks and appreciation to the community and their customers for their continuous loyalty and support throughout the last 25 years.
The National Citizen Bank was recognized for its all-inclusive professional working environment and ongoing staff development that enhances its internal communications and employee relations. Throughout the last 25 years, National Citizen Bank has focused on the core fundamentals of regulatory modifications with the underlying goal of dividing the volume of both business and administrative tasks. As a result of this, the bank has successfully strengthened its staff’s capacity to obtain, manage outstanding liabilities, and acquire assets to negotiate and retrieve capital efficiently and reliably.
When asked what allowed the bank to triumph against the fierce competition, Wanda Rich, Editor for Global Banking & Finance vocalized, “one of the key factors that stood out to the committee is that National Citizen Bank strives to maintain and maximize profit to shareholders through the implementation of stable, sustainable business operations and advanced production methods. The bank has also remained stable, positive, and had a high growth rate in all of its activities, which is not often seen; however, it clearly indicates how prestigious and overall accomplished they are. They should be exceptionally proud of all three awards.”
About National Citizen Bank
The National Citizen Bank was initially established as a rural bank in 1995 under the name Bank of Kien River. The bank optimized its competitive standing within the global financial industry, later transforming into an urban banking institution where they reinstated their name as the National Citizens Bank. With a team of highly professional financial experts and customer service representatives, the bank embraces each customer’s diverse needs to ensure customary, efficient, and trustworthy experiences from start to finish. Over the years, the bank has prided itself on its continued emphasis on risk management and global business relations with investors, customers, and partners. For more information, please visit the National Citizen Bank.
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